Bad news for salaries in South Africa

Annabel Bishop, the chief economist at Investec, says that the fall in annual salaries is a reflection of businesses facing a high operating cost environment.

The fall in annual salaries, both nominal and real, should be viewed against the difficult environment businesses face, due not least to load shedding, she said.

According to the economist, early consumer data for February from BankservAfrica showed that the average take-home pay has continued to contract compared to last year, down 1.8% to R15,186 per month (nominal) and down 8.3% in real terms to R14,225.

“The actual number of salaries, as opposed to the rand value, fell on a monthly basis in December and January, but BankservAfrica says “less than a thousand jobs were created in February” as “the job market stabilised,” said Bishop.

She added that companies are currently operating in a high-interest rate environment, a record high in fourteen years, adding to already restrictive conditions.

The end of last month (30 March) marked the ninth consecutive rate hike by the South African Reserve Bank (SARB) since November 2021. The surprise 50 basis point hike brought the total rate cycle to be equivalent to 425 basis points since the start of the rate cycle.

Despite these hikes, inflation is still running rampant, and economists are becoming more sceptical of their efficiency.

Bishop said that high-interest rates come as economic demand is subdued and inflation is still historically high for South Africa, near levels seen in 2009 following the global financial crisis.

Francois Stofberg, the managing director at Efficient Wealth, said that the country’s poor overall management paired with its overreliance on commodities, exchange rate volatility, and the US dollar surge, are the primary contributors to heightened levels of inflation.

According to Bishop, South Africa’s cost of living has increased rapidly over the past twelve months, as measured by the CPI inflation rate, peaking at 7.8% y/y in July 2022 and still high at 7.0% y/y in February 2023, eroding consumers purchasing power.

“With weak economic growth of only 0.2% y/y expected in 2023, little job creation is to be expected, with BankservAfrica data for February showing economic activity contracting, and in March, economic activity reached its lowest point in three years.”

Bishop said that the BankservAfrica Economic Transactions Index (BETI) dropped -3.6% y/y, also falling in quarterly and monthly terms as “the weakness in the economy has become quite broad-based, with most sectors under severe pressure”.

BankservAfrica further highlighted that its index is showing a negative growth rate in the first quarter of this year.

“The March BETI was 1.7% lower than in the quarter ending December 2022,” Bishop said.

Regarding economic growth, she said that Investec continues to forecast a GDP contraction for the first quarter of 2023 of -0.5%, with a recession on a technical basis.

Recent data from the International Monetary Fund (IMF) echoes Bishop’s GDP forecast, reporting a slashed forecast of 0.1% growth for 2023.

The IMF further reported that South Africa was the largest loser in economic growth forecasts when compared to all major global economies.

The IMF’s prediction for economic growth in South Africa is currently the gloomiest among the financial institutions that have issued yearly forecasts. It aligns with Nedbank’s forecast of 0.1%.

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